Lurking In Plain Sight: Profit Drains

Manual data entry and rework. Delays in capturing costs from the field. Inaccurate work in progress (WIP) forecasting. Sloppy tracking of change orders. Payroll system not integrated with job costing. These are five “margin killers” that are often hiding in plain sight in the construction business. Faced with rising expectations and tighter margins, construction business owners need to implement a more strategic approach to financial processes. 

Put Back Office Functions Under The Spotlight

Every new construction project inherently comes with margin threats, but slow and steady drains to profitability are often lurking in outdated and behind the scenes routines related to financial processes. At Construction Business Owner, John Meibers of Deltek ComputerEase encourages addressing the hidden “margin killers” that are likely having the combined impact of limiting growth: 

Construction leaders who address these issues don’t just improve accounting efficiency. They also gain:

• Better visibility into job performance
• Faster, more confident decision-making
• Stronger control over margins and cash flow

In today’s environment of tighter margins and higher expectations, financial processes can no longer be an afterthought. Contractors who treat them as a strategic asset, not just a back-office function, put themselves in a far stronger position to protect profits and scale sustainably.

According to Miebers, “one of the most underestimated threats to profitability in construction,” is manual data entry and rework, such as: “Time cards rekeyed into payroll. Vendor invoices are manually coded to jobs. Cost updates are copied from spreadsheets into accounting systems.” Each of these manual touchpoints introduces the potential for hidden costs, which may seem small but add up as they result in: 

• Delays in getting financial visibility
• Increased risk of errors and miscodes
• Rework when mistakes are discovered weeks later

To avoid the drain of “extra administrative labor, inaccurate job costs and decisions based on flawed data,” Meiber advises: “Reducing duplicate data entry through integrated, automated systems and standardized workflows so information is entered once and flows consistently across accounting, payroll and job cost.” In addition to curtailing profit leaks caused by manual entry, construction owners may also see a positive impact to the bottom line as they get more strategic about capturing field costs in real time, tracking change orders, accurately forecasting work in progress, and integrating payroll with job costing. Specifically, for better profit margins Meibers recommends turning attention to:

• Faster, more accurate cost capture from the field that feeds job cost reporting quickly so project managers can act while it still matters.
• Reliable, timely job cost data combined with disciplined, accurate forecasting so WIP reflects current conditions, not outdated assumptions.
• Centralized tracking that connects change orders to job cost, billing and financial forecasts, so no work slips through the cracks.
• Tight alignment between payroll and job cost systems so labor costs, burden, and classifications hit jobs accurately and quickly.

Keep A Steady Eye On Cash

In construction, when growth is your goal, you need increased bonding capacity, which requires even more rigorous attention to your cash position. Toward that end, Pablo Martell of Alpine Mar recommends converting short-term assets into liquid cash, negotiating expedited payments, and attending carefully to change order management: 

• When structuring construction contracts, clearly define payment intervals tied to project milestones rather than a massive lump sum at the end. To foster a mutually beneficial relationship with project owners, consider offering minor discounts for early payments, and ensure your payment terms are entirely transparent. Ambiguity in a contract is a breeding ground for payment delays that ripple negatively into your cash flow.
• Lingering, unapproved change orders breed payment denials, legal disputes, and project delays—all of which are red flags to a surety underwriter. Furthermore, prompt handling of change orders allows you to lock in material prices early, protecting your profit margins from inflation or supply chain disruptions.

Tools To Leverage for Growth: A Line of Credit and Financial Scores

Many builders find that one of the most powerful tools for a growing contractor isn’t a bigger piece of equipment, it’s a surety line of credit. Having your bonding limits in writing gives you the strategic control to bid on larger, more profitable projects with total confidence. Colonial Surety Company is here to help, with the bonding programs builders need, and knowledgeable experts too. 

For Bonds up to $500K: Use our Hometown Bond Program. It is credit-based, with no financial statements required. 

For Larger Bonds: Get armed with single and aggregate bonding limits, in writing, and even issue your own instant Bid Bonds, via The Partnership Account® for Contractors. Once qualified, get a surety bond line of credit for up to 20 million single, and 40 million aggregate. Receive free financial scores just for completing our easy pre-qual.

Put your business on a growth path with a few clicks, now: 

Bonding Programs at Colonial Surety Company

Founded in 1930, Colonial Surety Company is a leading direct seller and writer of surety bonds and insurance products across the USA. Colonial Surety Company is rated “A Excellent” by A.M. Best Company and U.S. Treasury listed. Let’s connect today: Colonial Surety Company.